WASHINGTON — Alarmed by the sharply
eroding confidence in the nation’s two
largest mortgage finance companies, the
Bush administration on Sunday asked
Congress to approve a sweeping rescue
package that would give officials the
power to inject billions of federal
dollars into the beleaguered companies
through investments and loans.

In a separate announcement, the Federal
Reserve said it would make one of its
short-term lending programs available to
the two companies, Fannie Mae and
Freddie Mac. The Fed said that it had
made its decision “to promote the
availability of home mortgage credit
during a period of stress in financial
markets.”

An official said that the Fed’s decision
to permit the companies to borrow from
its so-called discount window was
approved at the request of the Treasury
but that it was temporary and would
probably end once Congress approved
Treasury’s plan. Some officials briefed
on the plan said Congress could be asked
to extend the total line of credit to
the institutions to $300 billion.

The actions, which taken together could
provide an overwhelming surge of capital
to the companies, were the second time
in four months that the housing crisis
had prompted the government to scramble
over a weekend to rescue a major
financial institution. Last March, the
Treasury Department engineered the sale
of Bear Stearns to prevent it from going
into bankruptcy and cause a shock to the
financial system.

The plan was disclosed on Sunday evening
to calm jittery markets overseas and on
Wall Street in advance of a debt sale by
Freddie Mac on Monday morning. Officials
said that after talking to senior
lawmakers through the weekend, they
expected that Congress would attach the
proposals to a housing bill that could
be completed and sent to the White House
for approval as early as this week.

“The president has asked me to work with
Congress to act on this plan
immediately,” the Treasury secretary,
Henry M. Paulson Jr., said Sunday on the
steps of the Treasury building. “Fannie
Mae and Freddie Mac play a central role
in our housing finance system and must
continue to do so in their current form
as shareholder-owned companies. Their
support for the housing market is
particularly important as we work
through the current housing correction.”

While senior Democratic and Republican
officials in successive administrations
have for many years repeatedly denied
that the trillions of dollars of debt
Fannie and Freddie issued is guaranteed,
the package, if adopted, would bring the
Treasury closer than ever to exposing
taxpayers to potentially huge new
liabilities. The two companies could
face significant new losses this year as
the wave of housing foreclosures
continues. Officials seemed to suggest,
however, that they had little choice but
to intervene.

Over the weekend, Treasury officials
sought assurances from Wall Street firms
that the $3 billion auction by Freddie
Mac of short-term debt would go off
without a hitch. While $3 billion is a
relatively small sum for an institution
of Freddie’s size officials said they
did not want to risk even a small
misstep that could set off a new round
of problems.

The government officials said that the
more drastic alternative that has been
considered — placing one or both
companies under the control of a
government-appointed conservator — would
be done only as a last-ditch measure if
the intermediate steps failed to restore
confidence. The failure of just one of
the companies could be catastrophic for
economies around the world.

The officials said they were prompted to
act because, despite repeated assurances
by top officials that the companies had
adequate cash to weather the current
financial storm, Fannie and Freddie
suffered a withering blow of confidence
last week when their stocks plummeted on
the New York Stock Exchange. As a
result, Freddie faced an uncertain debt
offering on Monday.

The companies, known as
government-sponsored enterprises, or
G.S.E.’s, touch nearly half of the
nation’s mortgages by either owning or
guaranteeing them, and the debt
securities they issue to finance their
operations are widely owned by foreign
governments, pension funds, mutual
funds, big companies and other large
institutional investors.

“G.S.E. debt is held by financial
institutions around the world,” Mr.
Paulson said in his statement. “Its
continued strength is important to
maintaining confidence and stability in
our financial system and our financial
markets. Therefore we must take steps to
address the current situation as we move
to a stronger regulatory structure.”

The proposal would give the Treasury
secretary authority to determine when to
invest in the companies or extend loans
to them. Those purchases would be made
with the agreement of the companies.

Officials said the proposed investment
and lending elements of the plan were to
last two years.

While the Treasury did not specify the
size of the packages, officials briefed
on the plan said they were told by
administration officials that, to be
meaningful, Congress should consider
extending the line of credit to the two
institutions to $300 billion.

Each company now has a $2.25 billion
credit line, set nearly 40 years ago by
Congress. At the time, Fannie had only
about $15 billion in outstanding debt.
It now has total debt of about $800
billion, while Freddie has about $740
billion. Today the two companies also
hold or guarantee loans valued at more
than $5 trillion, about half the
nation’s mortgages.

Lawmakers said that as part of the plan,
the administration called on Congress to
raise the national debt limit. And it
asked Congress to give the Federal
Reserve a role in setting the rules for
how big a capital cushion each company
must hold. Giving the Fed a consulting
role in the companies’ oversight is seen
as another way to reassure markets.

Initial reaction to the plan by some
Congressional Democrats was positive.

An early endorsement came from Senator
Charles E. Schumer, the New York
Democrat who is also a senior member of
the banking committee.

“The Treasury’s plan is surgical and
carefully thought out and will maximize
confidence in Fannie and Freddie while
minimizing potential costs to U.S.
taxpayers,” Mr. Schumer said. “While
Fannie and Freddie still have solid
fundamentals, it will be reassuring to
investors, bondholders and
mortgage-holders that the federal
government will be behind these agencies
should it be needed.”

Representative Barney Frank, Democrat of
Massachusetts, and one of the authors of
the housing legislation, said he
supported the Treasury proposal. He said
he expected the plan would be included
in the housing bill, which he said would
be approved, sent back to the Senate and
likely land on the president’s desk by
the end of the week.

“The general thrust of what they’re
doing is right,” said Mr. Frank, the
chairman of the House Financial Services
Committee.

Senator Barack Obama of Illinois, the
presumptive Democratic presidential
nominee, told reporters in San Diego on
Sunday that any government action to
rescue the two mortgage companies should
be done from the perspective of
homeowners, “not just shareholders and
investors and C.E.O.’s of companies.”

His presumed Republican opponent,
Senator John McCain of Arizona, said
last week that he expected the
government would do all it could to
prevent the failure of either company.

The administration’s announcement was
made after senior officials from the
Treasury and the Federal Reserve spent
Saturday and Sunday closely monitoring
preparations by Freddie Mac to raise
money to help meet its short-term
financing needs. Officials said they
were watching to see if the steep
declines last week of Freddie and Fannie
stock would spill into the debt market
and undermine the confidence of lenders.

A senior official said that the
administration had been receiving mixed
signals from Wall Street about the
Monday auction. But other officials
denied that the prospect of a weak debt
offering had motivated the Treasury to
rush out its rescue plan.

“There is nothing that motivated us to
act tonight that changed from Friday
night,” said a Treasury official. “There
has been no further deterioration in the
markets.”

Daniel H. Mudd, the president and chief
executive of Fannie Mae, said the
company “appreciates today’s
announcements and the expressions of
support.”

“We continue to hold more than adequate
capital reserves and maintain access to
liquidity from the capital markets,” Mr.
Mudd said. “Given the market turmoil,
having options to access provisional
sources of liquidity if needed will help
to strengthen overall confidence in the
market.”

Richard F. Syron, chief executive of
Freddie Mac, said, “This affirmation of
the important role of the G.S.E.’s, and
that we should continue to operate as
shareholder-owned companies, should go a
long way toward reassuring world markets
that Freddie Mac and Fannie Mae will
continue to support America’s homebuyers
and renters.”

On the prospect that the government
could buy shares, Sharon J. McHale, a
spokeswoman for Freddie Mac, said, “It’s
important to note that our understanding
with Treasury is that any agreement to
purchase equity can only occur with the
mutual agreement of both parties.”

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